$38 Billion in Budget Cuts? You Ain't Seen Nothing Yet

For all the drama surrounding the narrowly averted government shutdown, this was just the warm-up round. The real budget fight begins in a few weeks, when Congress must take up legislation to raise the federal debt limit. Emboldened by their success in wringing $38.5 billion in spending cuts from the Obama administration, Republicans will use the debt-limit vote to demand spending cuts and reforms that will make these most recent reductions look like a small down payment. They will succeed --because this time around President Obama has no leverage to stop them.

Going into last week's showdown, the conventional wisdom held that Republicans were in the weaker negotiating position --in danger of repeating the debacle of 1995 when President Clinton succeeded in blaming them for shutting down the government and used the standoff to rescue his flagging presidency. Yet on Friday, Republicans succeeded in forcing Obama to accept some of the largest spending cuts in history. Why? Because the president wisely recognized that the political landscape had changed dramatically since 1995. If Obama was confident voters would have blamed the GOP for a shutdown again, the government would be closed as you read this. Instead, the president caved.

What does portend for the coming debt-limit fight? It means Republicans hold all the cards. After all, if Obama was not willing to allow a temporary government shutdown on his watch, he certainly will not allow a cataclysmic government default. As Treasury Secretary Timothy Geithner recently warned Congress, default would "cause a financial crisis potentially more severe than the crisis from which we are only now starting to recover." President Obama will not allow this to happen under any circumstances. Unlike his threat last week to veto a short-term spending bill and let the government close, he has no such leverage when it comes to the debt limit.

If negotiations stall, House Republicans could pass a series of small debt-limit increases, with spending cuts attached, to keep the government solvent. Obama would be in no position to veto such temporary measures --because his veto would cause the government to default. Republicans can keep doing this until Obama capitulates. In the end, the president will have little choice but to swallow whatever spending reforms the GOP demands.

So what concessions should Republicans extract in exchange for a debt-limit increase? They should begin by insisting on the reforms proposed last week by Rep. Paul Ryan. The Ryan plan would cut $179 billion from the president's 2012 budget and another $241 billion the next year --the largest two-year savings since our military demobilization after World War II --and reduce spending by $6 trillion over the coming decade.

The Ryan plan also does something President Obama has thus far failed to do: Tackle entitlement reform. Ryan has proposed reforming Medicaid by providing states with "block grants" and allowing them to experiment with reforms. He has also proposed reforming Medicare by providing federal subsidies for seniors to purchase the private insurance of their choice --effectively remaking the entire program in the image of the extremely successful and popular Medicare "Part D" that provides subsidies for prescription drug coverage.

President Obama knows that Republicans will insist on these reforms, and he is scrambling to come out with a plan of his own this week. He is late to the game, and his plan reportedly will include tax increases --which should be a non-starter for the GOP. We'll see if what he proposes matches the scale and scope of the Ryan plan. Republicans should not agree to increase the debt limit unless the president agrees to bold entitlement reform, without tax hikes, as part of the final package.

The GOP should not stop there. Our nation will never get its spending under control unless Congress puts in place systemic constraints on future spending by passing a balanced budget amendment to the Constitution. The leaders in the fight for such an amendment have been Sens. John Cornyn (R-Tex.), a member of the Senate Republican leadership, and Orrin Hatch (R-Utah), the ranking Republican on the Senate Finance Committee. They should insist that passage of such an amendment be the sine qua non of any vote to raise the debt limit.

This is no time for Republicans to play small ball. In the debt-limit fight, the GOP enjoys a perfect storm of public support, political leverage and presidential weakness. This means Republicans have a once-in-a-lifetime opportunity to do something big. They must seize it. If Obama wants to raise the federal debt limit, the price should be the even deeper cuts and reforms proposed by Ryan – and a balanced budget amendment that would force Congress to implement them.

Marc A. Thiessen is a visiting fellow at AEI.

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